LOKAPAVANANI CREDIT CO-OPERATIVE SOCIETY LIMITED ,BANGALORE vs. INCOME TAX OFFICER, WARD-5(2)(5), BANGALORE

The appeal has been filed with a delay of 17 days and assessee also enclosed an application to condone the said delay. We have considered the reasons given in the said application and also by considering that the delay is minimal, we are inclined to condone the said delay.

The brief facts of the case are that assessee is a credit co-operative society registered under the provisions of the Karnataka State Co- operative Societies Act and filed its return of income on 07.11.2017. The assessee claimed the entire income as eligible for deduction under Chapter VIA. Subsequently the case was selected for limited scrutiny through CASS and notice u/s. 143(2) was issued on 20.9.2018. Thereafter another notice u/s 143(2) was issued on 25.9.2018 in which another reason of cash deposits during the demonetisation was added in the said notice. Thereafter assessment proceedings had commenced and the AO had disallowed the deduction claimed by the assessee under Chapter VIA of the Act for the reason that the assessee is also having associate/nominal members and therefore they are not entitled for deduction u/s. 80P(2)(a)(i) of the Act. The AO had relied on the judgment of Hon’ble Supreme Court in the case of Citizen Co- operative Society Ltd. The AO had also based on the details from the Banks treated the cash deposits during the demonetisation period as unexplained cash credits u/s. 68 of the Act.

As against the above said order, the assessee filed an appeal before the ld. CIT(A). The assessee had also raised a legal plea that the notice issued u/s. 143(2) of the Act is without getting any approval from the

At the time of hearing, the ld. AR submitted that the ld. AO had issued 143(2) notice on 20.9.2018 for limited scrutiny on 3 items, subsequently another notice was issued on 25.9.20218 in which the cash deposits made during the demonetisation period was also added and submitted that the said notice without getting any prior approval from the higher authorities is bad in law.

The ld. AR also submitted on the merits that the disallowance made by the AO on the sole ground that assessee is also having associate / nominal members are not in accordance with the judgment of the Hon’ble Supreme Court reported in Mavilayi Service Co-operative Bank Ltd. reported in 431 ITR 1 and therefore the order of the lower authorities are liable to be set aside. Insofar as the cash deposits made during the demonetisation period, the ld. AR submitted that the amounts are received from the members and the said cash deposits were made during the demonetisation period and in fact the assessee had produced the various evidences before the ld. CIT(A), but the ld. CIT(A) has not accepted the said evidences since the assessee had not

The ld. AR also filed a paperbook enclosing the various documents including the application seeking the permission of the ld. CIT(A) for admitting the additional evidences. The ld. AR has also filed a compilation of case laws in support of his contentions.

The ld. DR relied on the orders of the lower authorities and also relied on the judgment of the Hon’ble Delhi High Court in the case of Devendra Kumar Singh v. ACIT reported in [2020] 425 ITR 222 (Del) and submitted that the legal ground raised by the assessee is not maintainable.

We have heard the rival contentions and perused the material on record. In the present appeal, the assessee has raised a legal plea to the effect that the 2nd notice issued u/s. 143(2) is not valid since the same was issued without getting any prior approval from the higher authorities. In this connection, we refer to section 143(2) proviso which prescribes that the notice has to be issued within a period of six months from the end of financial year in which the return of income was filed. Admittedly in the present case return of income was filed on 07.11.2017 and therefore the financial year ends on 31.3.2018. The AO has 6 months’ time from the said date and the last date for issuing the notice under the above proviso is 30.9.2018. The AO had rightly issued the notice on 20.9.2018 by giving 3 reasons for scrutiny, whereas subsequently on 25.9.2018 another 143(2) notice was issued

Insofar as the addition made by disallowing the deduction claimed u/s. 80P(2)(a)(i) of the Act, the presence of associate/nominal members would not disentitle the assessee from claiming deduction u/s. 80P(2)(a)(i) of the Act as held by the Hon’ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. reported in 431 ITR 1. The Karnataka Co-operative Societies Act also permits the assessee society to have the associate/nominal members and therefore the denial of deduction u/s. 80P(2)(a)(i) of the Act by both the authorities are not in accordance with the principles laid down by the Hon’ble Supreme Court. We therefore allow the claim made by the assessee.

Insofar as the addition made u/s. 68 of the Act is concerned, we have considered the assessment order as well as the ld. CIT(A)’s order and also the application filed by the assessee before the ld. CIT(A) in which the assessee had sought for permission to admit the additional evidences in respect of cash deposits made during the demonetisation period. We have also considered the contention of the assessee that these are monies deposited by the Members of the society and therefore the said amounts could not be treated as unexplained cash credit u/s. 68 of the Act. The assessee also tried to prove the said facts by filing additional evidences before the ld. CIT(A). But unfortunately the ld. CIT(A) had not accepted such additional evidences only for the reason that the assessee had not submitted the said details before the AO at the

In the result, the appeal by the assessee is partly allowed.

Appellant 2. Respondent 3. Pr. CIT 4. CIT(A) 5. DR, ITAT, Bangalore.